yearly interest

Ike

If i have an ISA with 4% interest paid yearly, and a i transfer to an ISA with 5% (also paid yearly) before the year's out, what happens with my interest pay out?

grumbler

Welcome to MSE!.

Your interest will be calculated and added to transfered amount.

Ike

thanks for that!!
i now have a new question; Can you explain to me HOW the interest is calculated for a yearly ISA and a monthly ISA?

grumbler

If, for example you put £100 into two ISAs both with 5% AER (Annual Equivalent Rate), then after one year £5 will be credited to ISA account with yearly interest. Montlyly interest is (1+0.05)^(1/12)-1=0.004074=0.4074% and is credited every month. If you don't withdraw interest you will get the same £5 after 12 months:
Month_balance_interest
01_100.000_0.407
02_100.407_0.409
03_100.816_0.411
04_101.227_0.412
05_101.640_0.414
06_102.054_0.416
07_102.470_0.417
08_102.887_0.419
09_103.306_0.421
10_103.727_0.423
11_104.150_0.424
12_104.574_0.426
13_105.000_

mr_fishbulb

If you take the money out of an ISA before the end of the year do they pay you the interest so then or do you have to wait until the end of the year?

grumbler

If you close or transfer ISA they add the interest stright away. If you just withdraw money interest will be added at the due time.

mr_fishbulb

Thanks again

JCL

Great thread - was going to ask the same question myself as going to transfer from Abbey to A&L.